Who invests in the commercial real estate market in Poland?

Are investors interested in Polish office buildings and shopping centres, but there’s no appropriate investment product? Or have they rather put investments on hold, watching the Polish market and economy? Do the most conservative-minded investors still have faith in Poland? These questions are addressed by Jędrzej Suchowolec, Senior Advisor at Cresa Poland.

Jędrzej Suchowolec, Senior Advisor at Cresa Poland

What are investors who want to spend money in Poland actually looking for?

Jędrzej Suchowolec, Senior Advisor, Cresa Poland: At the current stage of the market cycle the most sought-after investment products are office buildings in prime locations, not only in Warsaw, and retail schemes with dominant positions in their respective regions.

Is it expensive in Poland?

Poland has attractively-priced properties compared to Western Europe. In addition, the investment risk associated with prime real estate is acceptable even to the most conservative investors such as German pension funds. There is also a strong demand but a limited supply of top-quality assets. As a result, as many as several positively screened investors interested in acquisition participate in the second round of bidding for large commercial real estate. We expect real estate prices to hit new record highs in upcoming months.

But not everything that is up for grabs will find buyers.

Properties put on sale attract varied levels of interest. Due to low interest rates across Europe and availability of cheap money, leading to downward pressure on yields, investors need to choose schemes that offer an income growth potential in order to gain returns they are looking for. That’s why the most sought-after properties are those that can be extended or those where new tenants can be brought in to create an added value both to the client and the investor.

Secondary schemes with no growth potential attract the least interest and often cannot find buyers immediately after their delivery to the market.

What is likely to delay a real estate sale?

Closing a transaction may be slowed down by both external factors and the pace of talks at the negotiation table. In most transactions, an investor acquiring a property is not the only entity committing funds to the deal. A financing institution which needs to carry out legal, financial and technical due diligence of the property is also an important link. Another key element of practically all transactions is that both parties need to obtain a tax ruling to demonstrate whether what is being sold is an organized component of an enterprise or an asset. Under Polish regulations, a tax authority must issue and deliver such ruling to the requesting party within three months from filing a request. A positive tax ruling is one of the key conditions precedent in a conditional real estate acquisition agreement.

What unusual situations could protract the sale process?

The legal status of a property sometimes needs to be regulated. For example, in the case of a building on a leased plot of land the vendor will first have to buy the land or at least to extend the usufruct. The process is also likely to drag on if the buyer adopts a delaying tactic in negotiations. For instance, the buyer, knowing that he is the only one, may try to return to the negotiation table with a revised price offer.

Today’s domestic policy of the Polish government, including in particular its fiscal consequences and potential business restrictions such as the ban on Sunday trading, may also lead to restarting discussions about previously agreed transaction conditions, delaying the closing.

What is the main source of capital invested in Poland?

Foreign capital continues to account for the lion’s share of all investment deals. It comes primarily from such countries as Germany, the US and the UK. South African funds that have in recent years increased their market share are also important players.

In recent quarters we have seen increased inflows of capital from Asia, including Singapore. We expect this trend to continue.

This year has already witnessed large transactions closed by Czech investors: the acquisition of the Ogrody Shopping Centre in Elbląg by the CPI Property Group and REICO’s acquisition of the Proximo office building. More transactions of this magnitude are likely given limited investment opportunities on the Czech market and attractive yield levels in Poland.